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Good and Bad Banking on Europe's Periphery: Pathways to Catching Up and Falling Behind
[working paper]
Abstract In this paper we seek to explain why bank performance has varied so dramatically during and after the financial crisis on Europe’s periphery, both across states and within them. Our dependent variable is bank performance defined in terms of credit provision and banks’ contribution to financial stabi... view more
In this paper we seek to explain why bank performance has varied so dramatically during and after the financial crisis on Europe’s periphery, both across states and within them. Our dependent variable is bank performance defined in terms of credit provision and banks’ contribution to financial stability. Our independent variable is the particular mix at play between political/social purpose and what we call ‘market authority’ - the importance of market incentives, signals and pricing within a particular financial ‘ecosystem’. “Economic nationalism” or the politicization of local and regional banks has often imbued banks with social and political goals, serving the economy at different levels, and is one major source of political/social purpose. But the latter must be constrained by market authority. We argue that for optimal bank performance, economic nationalism or political/social purpose must be constrained by market authority, otherwise a political logic (e.g. cronyism, a lack of professionalism, and deficits in banking expertise) can easily subvert or distort credit provision and undermine financial stability.... view less
Keywords
EU; East Central Europe; Southern Europe; financial crisis; banking; banking supervision; lending
Classification
Economic Sectors
Economic Policy
Free Keywords
Financial Crisis of 2007-2008
Document language
English
Publication Year
2017
City
Berlin
Page/Pages
28 p.
Series
KFG Working Paper Series, 83
ISSN
1868-7601
Status
Primary Publication; peer reviewed
Licence
Deposit Licence - No Redistribution, No Modifications